A new holiday fad for fund managers of all ages and denominations! LP On A Shelf (or ELP on a Shelf, as I call him) knows when you've been spending too much time at conferences, when you're creating pitch books that are too long, or when you're not hiring critical personnel (or skill sets) and will tell Santa not to offer you an allocation in the New Year.

Many of the fund managers I speak to remain conflicted about how best to position their diverse asset management firm. While I don’t have all the answers, perhaps I can help shed a little light on the topic for folks. Read this while you’re thinking about your capital raising battle plans for 2019. And may it help you separate who’s been naughty and nice, whose chimney you should visit and whose you should skip in the New Year.

In January of this year, I was asked to speak at the 2018 TEDx UIUC event "Roots." The theme of the event was pretty straightforward - "The beginning of all things are small" (Cicero). The organizers asked me to talk about both my professional journey and the work I do around diversity in finance/investing.

First, I was very flattered.

Then, I *may* have pooped my pants a little at the thought of giving a TEDx talk.

Ultimately, I of course accepted. And on April 22, 2018 I gave my talk to about 400 students, faculty, members of the Champaign-Urbana community, my mom, and Jill Kimmel (yes, THAT Kimmel).

The talk looks at what I've identified as the three types of good and bad luck that impact all of us on our journey to success, and how we can create more good luck (or micro-opportunities) to open doors for others and effect change, specifically in the investing community.

If you've got just under 20 minutes, I hope you'll take time to watch it. If you like the message, I hope you'll take time to share it. If you utterly hate it, let me know and I'll send you a personal note of apology for the time wasted AND I'll try to prevent my mom from sending you hate mail, too.

As someone who was born, raised, and has spent the majority of my life in the South, one of the things I’m required to love, besides SEC football, is Redneck Humor. From Trae Crowder, Corey Ryan Forrester, Roy Wood Jr., and Drew Morgan today to Ron White and Jeff Foxworthy a decade or so ago, I love poking fun at myself and laughing at my fellow rednecks. I can reliably drive on the backroads of Tennessee and come up with “You may be a redneck” moments every few miles, and my friends and me are up for our own hillbilly kudos when summer reliably finds us in a backyard with a baby pool and some PBR.

I even have a personal favorite “you may be a redneck joke” that makes me laugh every time I tell it:

“You may be a redneck if you think a tornado and a divorce have a lot in common – ‘cos either way, someone’s losing their trailer.”

(2) 123rf.com

Bwhahahahah!

A recent trip to the WellRED comedy show in Nashville got me thinking about all the ways in which, I as a redneck, can be defined. It also got me thinking about how we categorize and group other people, places and things in an attempt to make cosmos out of chaos.

There are few places in the investment world where there is more confusion than in the world of emerging managers. Ask two people what constitutes an emerging manager and you’re likely to get two completely different answers. Is it small funds? How small? Is it diverse funds? Ownership or fund management? Is it new funds? What’s the cut off? Does the manager need to be local? Does the manager need to be certified? What counts as a minority? Frankly, I find that emerging managers swirl in their own vortex of uncertainty.

So to help everyone out a little bit, I thought I’d use my 11+ years in the emerging and diverse manager space to create a handy-dandy checklist to determine whether or not a fund may be emerging. After all, it seemed like a great project for a winter weekend when 0.5 inches of snow has me pinned inside the house like the Southerner I am.

You Might Be An Emerging Manager If…

…you have less than $2 billion in AUM and manage long-only assets. Although this may seem reasonable on the surface, since the largest long-only fund managers may control trillions of dollars (with a “T”), it may still be a little large. In an August 2017 study by Richard B. Evans, Martin Rohleder, Hendrik Tentesch, and Marco Wilkens looked at 3,370 separate accounts (“SMAs”) managing $3,671 million and found those in the 10th percentile managed $5.38m, the 50th percentile managed $128m and the 90th percentile managed $1,470m, with a range of accounts from 3 to 15 to 305, respectively. In line with research about mutual funds, the authors found better performance in the smaller SMAs, in part due to liquidity constraints and market impact costs, but also due to increasing management complexity as the number of accounts increased. Take a look at the research if you’ve not seen it yet.

…you have less than $1 billion, and really more like <$250 million, in hedged AUM. (There are only about 700 funds with over $1 billion, so if you’ve gotten to that milestone, beating out 9,300 of your peers, I’d say you’d emerged).

…your firm is owned at least 51% by women or minorities for official certification, or has 33% women or minority ownership if you want to get a bigger crop of funds from groups that historically have had less assets with which to launch funds, and therefore may have partnered with firms or individuals that dilute the ownership structure.

…your fund is managed by women or minorities. This can be key for investors who are looking for cognitive and behavioral alpha (or differentiated networks for private asset funds), and may be more important to some than ownership status.

…the minority ownership or fund management in question is done by a U.S. citizen.

…the minority ownership is not by fungible personnel who were given ownership status simply to qualify for MBWE status (wives, daughters, back office personnel, figureheads).

…the fund is less than three years old or is a Fund I, II or III.

…the fund is not part of a mega asset management complex.

…the fund meets the above requirements and is located in the same state as the certain potential investors (Illinois, Pennsylvania, etc.)

…the fund is owned by veterans or disabled veterans.

Now, obviously there are all kinds of competing definitions out there, and there are also practical implications for investors, particularly larger ones. For example, if an institution manages billions of dollars (with a “B”), it may be difficult for them to look at the smaller end of the spectrum of emerging funds without having to assemble a massive portfolio of managers. Still, I hope these definitions may resonate with folks out there who are looking to capture some structural, cognitive and behavioral alpha. They may be a more successful investor if….

I seem to provide this information to newer and smaller funds often, so I thought I'd cut down on repetition and provide all you gorgeous small, new, and diverse fund managers with a short guide to early stage investors. Now start smiling and dialing!

(c) 1980 Paramount Pictures

State Plans To Prioritize

Arizona - Has made at least one investment in a large 'emerging' manager.

Arkansas - Teachers Retirement System reportedly tabled the program in 2008 but 2011 document shows active investments in MWBE managers.

California - Looks for EM's based on size and tenure but prohibited by Prop 209 from looking at minority status or gender.

Colorado - Colorado PERA added an "external manager portal" in 2016 to make "it easier for us to include appropriate emerging managers when the right investment opportunities develop."

Connecticut - Based on size, minority status or gender. Awarded mandate in 2014 to Grosvenor, Morgan Stanley and Appomattox.

Florida - Looks at emerging managers on equal footing with other managers.

Georgia - Invest Georgia has $100 million to work with venture capital and private equity firms in the state. There is an emphasis on emerging managers and emerging funds per press reports.

Illinois - Perhaps the most active emerging manager state, based on gender, minority status and location.

Indiana - Based on size, minority status, or gender.

Kentucky - Reported $75 million allocation at one time.

Maine - Has made at least one investment in a large 'emerging' manager.

Maryland - Very active jurisdiction with details available online for gender and minority status manager information.

Massachusetts- Includes size, minority status or gender.

Michigan - $300 million program.

Missouri - Status based on size.

Minnesota - Past investments in emerging managers.

NewJersey - Status based on size.

New York - Status based on size, minority status or gender. $1 billion mandate in 2014. $200 million seed mandate in 2014.

NorthCarolina - Status based on size and HUB (minority and women owned) status.

Ohio - Status based on size, minority status or gender.

Oregon - Emerging manager program in place.

Pennsylvania - Status based on size with preference for minority or women run funds.

Anyone who has spent any time talking to me or reading my blogs knows I love a good movie. Although I don’t see as many as I’d like these days, I love how a film can transport you, inspire you, create emotion and just generally entertain. I even use the love of a particular film as a kind of odd litmus test in friendship, business and dating situations. Did you adore Forrest Gump? Yeah, that makes me seriously question your judgment.

But some movies stand out more than others in the MJ Pantheon of Favorite Flicks. Star Wars (the original trilogy, natch), Shawshank Redemption, Argo, Bridesmaids, The Blind Side (don’t judge me), The Wolf of Wall Street, The Princess Bride, 50/50, Raiders of the Lost Ark, Rudy, Love Actually, Aliens, The Terminator (1 & 2), Die Hard and Pride & Prejudice (the 2005 version) are just a few of my all-time faves.

And of course, there’s Bull Durham. Though I’m not a huge fan of baseball (too slow, lots of spitting, often hot), I loved that movie when I first saw it at the ripe old age of 18. It was my first sophisticated on-screen romance, which had theretofore been populated by teen sex films (e.g. Porky’s), John Hughes offerings (Pretty in Pink, Sixteen Candles) and saccharine Disney scripts.

When Kevin Costner’s Crash Davis gave his epic speech during Annie Savoy’s, ahem “tryout” between Crash and Nuke LaLoosh (Tim Robbins), Susan Sarandon wasn’t the only one who sighed “Oh my…”

In case you haven’t seen Bull Durham since it’s original 1988 release (sacrilege!), here’s the scene in question. (And you may not remember this, but it is officially NSFW.)

Since we’re nearing the end of summer, I decided to watch my one and only cinematic homage to baseball over the long Labor Day weekend. It got me thinking about what I believe in when it comes to life and investing, and it wasn’t long before I was on an epic, Crash Davis-esque rant.

“I believe in manager skill. That checkbox due diligence only works if you also have a high EQ for evaluating people. That generalists and specialists should work together to combine the best aspects of myopia and a more holistic, 30,000-foot view. I believe that people who call themselves long-term investors, but who regularly redeem in less than 24 months, are full of crap. I believe that managers who say they can’t find diverse job candidates either exist in ridiculously insulated bubbles or have no imagination. I believe that having less than 10% of hedge funds, mutual funds, venture capital and private equity funds managed by women – who comprise 50% of the population – means we’re missing out on some amazing talent. I believe if all investment managers and all investors agreed to always interview a diverse candidate for jobs/fund searches, it would go a long way towards adding cognitive and behavioral diversity to the industry.

“I believe in downside deviation, maximum drawdowns and time to recovery. I think standard deviation is silly. I believe most investors don’t worry about upside volatility, but that out-of-character positive returns should trigger a monitoring phone call as fast as a losing month. I believe in macro funds, commodity trading advisors and short selling strategies, and that investors should consider these strategies before the proverbial shit hits the investing fan. I think hedging with index options isn’t real hedging, and that taking 8 to 12 months to complete due diligence is like wanting to get pregnant without risking actual sex.

“I think investment conferences should improve the quality of their cocktail party wine. That you should NEVER order the vegetarian option for lunch at an event unless you have a desire to eat something that looks like road kill. I believe in polite but persistent marketing. I think that if you focus on your expertise instead of a sale, you’ll amass greater assets under management (AUM). I believe you should always check time zones before calling a prospect or client, and that texting is NSFP (Not Suitable For Prospects).

“I believe in differentiated networks, niche strategies and cognitive alpha. I believe in gut feelings and spidey senses about people, markets, and investments. I believe in contrarians, and in sticking to your investment guns, as long as you periodically re-visit your thesis to ensure you’re not just stubborn. I believe going to cash takes testicular fortitude. I believe getting back into the market does, too. I believe in good business cards, firm handshakes and not approaching prospects in the bathroom.

“I believe that those funds that don’t get into responsible investing/ESG now will be licking AUM wounds in years to come. I believe that all investment managers make mistakes, and that admitting mistakes and ensuring that they don’t happen again is a mark in a manager’s favor. I believe in strategy continuity, but not necessarily in strategy drift. And that past performance isn’t indicative of future results, but it beats knowing nothing about how strategy translates into returns.

"I believe that most meetings could be emails, and those that cannot should be limited to one hour, tops. Oh, and any meeting that goes longer than one hour should involve snacks.

"Finally, I believe in small funds. New funds. Large funds. Old funds. Women run funds. Minority run funds. White guy run funds. Bread and butter funds. Niche funds. Liquid funds. Illiquid funds. And contrarian funds. I believe there is manager talent and fund utility in all types of funds, and that only by looking at the full menu can investor's hope to have a balanced portfolio meal."

Oh my!

So get back to work all. I hope you enjoyed my little investment rant…pith in the wind if you will. Maybe it will get you thinking about YOUR investment beliefs as we ramp back up into what I think could be a certifiably crazy fall market. Oh, and if you have an investment belief or rant of your own (or a good movie suggestions), feel free to sound off in the comments below.

When I was a young lass in Nineteen Never Mind, I used to spend Christmas Day with my mom and the week after Christmas with my dad. He would come for my sister and me in Tuscaloosa, Alabama and drive us all the way to Ft. Worth, Texas for another week of holiday overeating and unwrapping.

It was about a 12-hour drive, door to door, but we tried to make the best of it. My sister, stepbrother and I would clamber into the “way back” with a cooler full of Cokes,bags brimming with healthy snacks like Pop Rocks, potato chips and Slim Jim’s, nestled securely next to my Dad’s Coors that he snuck over state lines, Smokey & the Bandit-style. There, we’ll loll about (with no seatbelts), stuffing our faces (not dying from the Pop Rock/Coke combo) and alternate singing, sleeping and snarking at one another for the entirety of the 12-hour trip.

At some point, we would inevitably get on my Dad’s nerves. There would be over-the-seat, disjointed swats, strong language and finally a threat to “TURN THIS DAMN CAR AROUND AND TAKE EVERYONE HOME.”

We kids thought that was super funny.

What wasn’t hilarious, however, was 2016 - an epically craptastic annum bad in so many ways that it even made Mariah Carey’s New Year’s Rockin’ Eve performance look apropos.

So, while 2017 is still barely warm, I thought I’d give it a little, tiny warning.

If y’all pull the same stunts this year that you did last year, I’ll turn this year around and take us all home. At the very least, I’ll figure out how to off everyone using nothing but Pop Rocks and warm Coors. You get me?

What am I talking about specifically? Well, here are some of my key investment industry pet peeves from 2016:

Looking in the same tired places for returns, and then pretending shock when they don’t measure up – Investors from Kentucky to New York and a few states in-between reduced or redeemed their hedge fund portfolios in 2016, based in large part on lackluster “average” returns. While many point to “average returns” in the neighborhood of just under 5% though November, perhaps it’s best to look at how the best (and worst) performers are faring. Articles have shown top performing hedge funds gained 20% or more through November 2016. And over the four quarters ending 3Q2016, top HFRI decile funds gained 29.54%. The bottom decile funds lost 15.57%. So there are funds that have performed strongly over the last 12 months IF an investor was willing to look for them and perhaps take risks on lesser known, newer, nicher or funds otherwise “off the beaten path.” It kind of reminds me of the old joke “Doctor, doctor, it hurts when I do this…” How ‘bout in 2017, we stop doing that, lest it continue to hurt.

Using “averages” to talk about investment funds, particularly alternative investment funds – Speaking of, with the kind of return dispersion above, why don’t we stop talking about “average returns” full stop. Even when it comes to white-bread mutual funds, getting fixated on “average” returns doesn’t really help. How do I know? One of the top, non-indexed US mutual funds returned 30% in 2016. Yeah, I said 30-freakin’-percent, more than twice the return of the S&P 500. But by fixating on “average return,” no matter what the asset class, investors may in danger of writing off entire investment strategies based on normalized returns that don’t accurately represent reality. In 2017, let’s focus more on the opportunities unveiled by return dispersion and less on pesky averages, shall we? Oh, and the same thing goes for fees discussions, too.

Saying you want to hire diverse talent, but complaining that you “just can’t find any” – So I’ve heard (or read about) more than one asset management firm complain about how they’d “love to hire women and minorities” but they “just can’t find qualified applicants”, and they’re not willing to lower their standards. Come. On.

Women comprise 50.8% of the U.S. population according to the Census Bureau. Minorities make up nearly 23% of the U.S. population. Do some simple math on the number of women and minorities in a population of 323,127,513 and it boggles the mind that there are ZERO qualified diverse applicants.

Indeed, when I read or hear this, one of a few questions generally comes to mind:

How homogenized is this person’s personal network and how might that impact other investment research and decisions?

How much effort does this person put into finding diverse candidates? Do they contact recruiters who specialize in the area? Do they go to conferences put on by 100 Women in Hedge Funds, NASP, the NAIC, and others?

If there is a pipeline problem in this person’s line of work and they genuinely want to fix it, what are THEY doing to fix this issue in the long-term? Do they bring in diverse interns? Diverse entry-level positions? Do they promote these individuals?

Inappropriate benchmarks – Why, oh why, do we benchmark every damn thing to the S&P 500? It’s become so pervasive that I just caught myself doing it above (the top performing mutual fund invests in small caps, not S&P-level stocks) and I know better. Just because it’s well known, and just because it’s been crammed down our throats by everyone from consultants to financial advisors, doesn’t mean it always fits. Small cap fund? Ixnay on the S&P-ay. Hedge funds? Can’t be expected to outperform in bull markets because they are HEDGED. Private equity & venture capital – comparing illiquid investments to a liquid benchmark seems a bit silly, no? So in 2017, let’s either agree to benchmark appropriately so we can make a sober decision about whether an investment has performed well (or not) OR let’s just decide to sell everything and invest only in the S&P 500, since it’s where it’s at, obviously.

Communicating inappropriately – This may be just a “me” thing, but in 2016 I noted an increasing number of asset managers who text investors. What. The. Actual. Hell. Texting is informal. Texting is immediate and insinuates you deserve an instant response. Texting invites typos. Texting doesn’t allow for compliance review or disclaimers. Unless you are meeting someone that day and need to say you’ll be late, early, or identifiable by the rose in your lapel, or unless that investor has given you express permission to text, don’t. The investors I know who put their mobile numbers on their cards are coming to regret it. And if you lose that, you’ll only spend more time waiting on callbacks.

So cheers, all, to a happy, healthy, prosperous, properly benchmarked 2017. May we lose fewer of my 80s idols and more of our investing bad habits.

Well, 2016 has been one helluva year. Between the celebrity deaths (Bowie, Rickman, Prince in particular), fake news, election chaos, Zika, creepy clowns, Aleppo, and a host of other miserable events, I know I won’t look back on 2016 with anything remotely regarding fondness. In fact, I may pretend this year didn’t even happen, therefore reducing any future therapy bills and bolstering lies about my real age.

But alas, as much as I wish I could be Queen of de-Nile, I’m afraid 2016 did happen, and I have the blogs to prove it.

So if you need a good year-end chuckle to survive the holidays, the Electoral College vote, or your boozy office fete, or if you’re just craving random info and snarky rants about the investment industry, I’ve got just what the doctor ordered.

Here’s a complete wrap up of all my blog postings, by topic, for 2016. Enjoy them while you rock around the Christmas tree, drink your Gin and Tonica, or however you plan to celebrate the season.

You know that curse on the Chicago Cubs? Surprise! They won the World Series.

Didn’t I just see a Facebook post on a local norovirus (aka the stomach flu) outbreak? Surprise! I temporarily had to rename myself Vomitola Khomeni – and finally found that button I ate when I was three…

Hey! Do you remember all those polls that showed Democrat Hillary Clinton easily winning the White House? Surprise! Donald Trump is the 45th President of the United States.

Oh, and of course you recall all the dire predictions for the stock market should Donald Trump win the presidency? Surprise! The Dow Jones Industrial Average was trading in record-making territory a mere two days later.

To be honest, while I did spend much of the first part of the week “enjoying” my virus-induced weight loss opportunity, I also, if somewhat dimly and feverishly, realized that collectively we have done a terrible job of predicting recent events.

I know many in the financial industry had to have been stunned and dismayed by the election results. According to an October 26, 2016 article in Fortune, Trump raised $239,250 from hedge fund and private equity firms, while Hillary Clinton raised $45.2 million from the same groups. Charles River Ventures, a Silicon Valley venture capital firm even went so far as to entitle a blog posting “F*CK TRUMP.” Even though Republicans in other races enjoyed healthy and widespread financial industry support, it just wasn’t there for Trump.

So where do we go from here? How does the investment industry successfully navigate the new normal and survive and thrive in a new world order? Here are a few thoughts I had that may help investors and managers both do good while they do well.

One: Don’t Say Or Write Anything That Endangers Your Current AUM

This was a contentious election. Combative. Testy. Belligerent. Factious. Antagonistic. Insert every single synonym for “unpleasant and argumentative” you can come up with here, because no matter how you slice it, the 2016 political campaign was a dumpster fire, starting with the Republican and Democratic primaries and continuing through the general election. It. Was. Not. Pretty.

As a result, there are a lot of very strong post-election feelings on both sides of the aisle.

And as we extend our personas over Facebook, Twitter, Blogs, Instagram and other platforms, there has simultaneously been a reduction of social restrictions and inhibitions known as the “Online Disinhibition Effect.” It makes us more likely to say, write or post things that we likely wouldn’t have before.

When you combine those things – deep disappointment, hurt feelings and increased disinhibition – you end up with an improved likelihood of offending someone, inadvertently or otherwise. And when you seriously offend a client or prospect in this industry, your AUM suffers.

So lock down your Facebook account if you post politically on it. Don’t assume you know what someone’s views may be unless they’veactuallytoldyou what their views are. In fact, to the extent that politics and social issues don’t impact your investment strategy or portfolio, don’t talk about them in professional settings. At all. Better safe than sorry because it’s easier to keep a client/investor than to acquire a new one.

Don’t believe me on this one? Ask Matt Maloney, who’s firm, GrubHub, suffered share price losses of 9.4% in the two days after the election over a leaked internal communiqué. Shut. It.

Two: Consider Diversity In Hiring and Investing

This election cycle has been, at least in part, about disenfranchisement. Trump likely won the election due to the disenfranchisement of the white, working class rural voter, while those who fear pending disenfranchisement (minorities, women, immigrants, LBGTQ) have fueled protests post-election.

The good news for investors and money managers is that inclusion will ease disenfranchisement, and it can also make everyone richer, too. Here’s how:

Deszo & Ross studied the effect of gender diversity in the S&P 1500 and found that “female representation in top management leads to an increase of $42 million in firm value.”

Orlando Richard found in his study that for “innovation-focused banks, increases in racial diversity were clearly related to enhanced financial performance.”

Catalyst found that Fortune 500 companies with the highest representation of women board directors had significantly higher financial performance than those that don’t.

The HFRI Diversity Index (+4.21%) has outperformed both the HFRI Fund Weighted (+3.59%) and HFRI Asset Weighted (1.31%) indices for the year to date through October.

In a paper by Stanford professor Margaret Neale, diversity and intellectual conflict proved good for organizations. “When…newcomers were socially similar to the team, old team members reported the highest level of subjective satisfaction with the group’s productivity. However, when objective standards were measured, they performed the worst on a group problem-solving task. When newcomers were different, the reverse was true. Old members thought the team performed badly, but in fact it accomplished its task much better than the homogenous group.”

Diversity includes “Functional Diversity” or “the extent to which individuals frame problems and go about solving them.” As a result, age, background and life experience should also be considered aspects of the diversity equation.

Certainly, in a rapidly changing world, having better problem solving skills and potentially better returns has to be a good thing, right? So cast a wide net when hiring staff or money managers going forward to maximize your cognitive alpha.

Three: It’s Still A Great Time To Focus On ESG Factors

So, early reports have the newly-elected administration throwing out both the Environmental Protection Agency and the CFPB, as well as doing away with Dodd-Frank, among other regulatory changes. While it’s too early to know whether and when that can or will happen, there are a few things we do know:

49% of high net worth (HNW) millennials (yes, they exist!) say that social responsibility is a consideration in investing. 53% of all millennials agreed. 43% of HNW GenX also consider social responsibility in investing. Due to demographic shifts in the workplace (these groups of workers are now larger than Boomers) and the looming generational wealth transfer, it probably makes sense to develop products that cater to these interests sooner rather than later.

Bauer, Frijins, Otten and Tourani-Rad found “well-governed firms significantly outperform poorly governed firms by up to 15% a year” in their paper “The impact of corporate governance on corporate performance: Evidence from Japan.”

A Wharton paper from 2012 shows a “positive association between corporate governance and performance…and evidence that higher corporate governance leads to an increase in cash dividends.”

Exxon spent $2.1 billion cleaning up the spill from the Exxon Valdez, which, while recoverable, ain’t great for a company’s bottom line.

Wells Fargo’s recent governance gaffe could cost the company up to $4 billion in revenue.

GrubHub’s “hostile workplace” internal email has led to a boycott and a drop in share price.

It seems reasonable that ignoring ESG factors can cost you both potential returns and clients, and possibly increase portfolio risks. And even if there aren’t dedicated regulations or government bodies watchdogging, it also seems reasonable to assume that many investors (and the markets) WILL still care.

Four: Don’t Make Any Sudden Investment Moves

The Sunday before the election, I had a sudden Han Solo moment (“I’ve got a bad feeling about this…”) and decided that I needed to think about buying an inverse S&P ETF. I gave myself 24 hours to ponder and ultimately decided to stay my current course and not change anything in my investment portfolio. Lucky me, right? That single choice would have cost me. Bigly.

Humans want certainty. In a study published in Nature Communications, knowing there is a small chance of getting an electrical shock causes more stress than knowing you’ll be shocked.

Shocking!

But seriously, when you’re feeling uncertain about your investment strategy, take a moment. Take a walk. Take a breath. Take a sip. Take whatever step back you need before making any sudden investment decisions. Whether you’re an investor or a money manager or just a Star Wars fan with a retirement account, it’s important to remember that we generally invest for the long-term. Don’t risk your long-term goals chasing short-term “certainty.”

As for me, I’m taking my own advice. Right after I get back to my 80s roots, dig out my mismatched Converse high-tops from the very back of the closet, and have a 3-minute R.E.M.-party to dance it out. I invite you all to do the same.

It’s that time of year again. The leaves are turning pretty colors. Kids are back in school. There is a real possibility of leaving my air-conditioned Nashville home without my glasses fogging upon hitting the practically solid wall of outdoor heat and humidity. And like any good Libra lass, I’m celebrating a birthday.

That’s right, it’s time for my annual orgy of champagne, mid-life crisis, chocolate frosting and introspection. Oh, and it’s time to check the batteries on the smoke detectors – best to make sure those suckers are good and dead before I light this many candles.

One of the things I’ve noticed in particular about this year’s “I’m old AF-palooza” is how much time I spend thinking about sleep. On any given day (and night), I’m likely to be contemplating the following questions:

Why can’t I fall asleep?

Why the hell am I awake at this hour?

How much longer can I sleep before my alarm goes off?

Why did I resist all those naps as a kid?

I even bought a nifty little device to track and rate my sleep (oh, the joy’s of being quantitatively oriented!). Every night, this glowy orb tracks how long I sleep, when I wake, how long I spend in deep sleep, air quality in my bedroom, humidity levels (in the South – HA!), noise and movement.

To sleep, no chance to dream

Yes, I’ve learned a lot about my nocturnal habits from my sleep tracker – for example, I move around 17% less than the average user of the sleep tracking system, I’m guessing due to having two giant Siamese cats pinning me down - but the one thing I didn’t need it to tell me was that I SUCK at sleep.

I’m not sure when I went from “I can sleep 12 hours straight and easily snooze through lunch” to “If I fall asleep RIGHT NOW I can still sleep 3 hours before my flight….RIGHT NOW and I can still get 2.75 hours…1.5 hours….” but it definitely happened.

I don’t drink caffeine. I exercise. I bought a new age aromatherapy diffuser and something helpfully called “Serenity Now” to put into it. I got an air purifier, a new mattress and great sheets.

But no matter what I try, I am a terrible sleeper.

I’ve concluded that it must have something to do with stress. I do spend an inordinate amount of time thinking about life, the universe and everything, so perhaps that’s my problem.

So in honor of my 46th year on the planet, I decided to compile a list of the top 46-investment related things I worry about at night. They do say admitting the problem is the first step in solving it, after all.

In no particular order:

$2 trillion increase in index-tracking US based funds, which leads me to…

All beta-driven portfolios

Short-term investment memory loss (we DID just have a 10 year index loss and it only ended in 2009…)

“Smart” beta

Mo’ Robo – the proliferation (and the dispersion of results) of robo-advisors

Standard deviation as a measure of risk

Mandatory compliance training - don’t I know not to take money from Iran and North Korea by now?

Spurious correlations and/or bad data

Whether my mom’s pension will remain solvent or whether I have a new roommate in my future

Politicizing investment decisions

Did I really just Tweet, Blog or say that at a conference?

Focusing on fees and not value

Robo-advisors + self-driving cars equals Skynet?

Going through compliance courses too quickly & having to do them over again

Short-term investment focus

Will I ever have to wait in line for the women’s bathroom at an investment event? Ever?

Average performance as a proxy for actual performance versus an understanding of opportunity and dispersion of returns

The slow starvation of emerging managers

Is my industry really as evil/greedy/stupid as it’s portrayed

Factor based investing – I’m reasonably smart – why don’t I get this?

Dwindling supply of short-sellers

Government regulatory requirements, institutional investment requirements and the barriers to new fund formation

“Chex Offenders” – financial advisors and investment managers who rip off old people (and, weirdly, athletes)

The vegetarian option at conference luncheons – WHAT IS THAT THING?

Seriously, does anyone actually read a 57-page RFP?

Boxes...check, style, due diligence...

Tell me again about how hedge fund fees are 2 & 20…

The markets on November 9th

The oak-y aftertaste of conference cocktail party bad chardonnay

Drawdowns – long ones mostly, but unexpected ones, too

Dry powder and oversubscribed funds

Getting everyone on the same page when it comes to ESG investing or, hell, even just the definition

The use of PowerPoint should be outlawed in investment presentations. Like seriously, against the actual law - a taser-able offense.

Will emerging markets ever emerge?

Investment industry diversity – why is it taking so looonnnnggg?

Real estate bubbles – e.g. - what happens to Nashville’s market when our hipness wears off? And is there a finite supply of skinny-jean wearing microbrew aficionados who want to open artisan mayonnaise stores that could slow demand? Note to self, ask someone in Brooklyn….

Did anyone even notice that hedge funds have posted gains for seven straight months?

Yep, looking at this list it’s little wonder that sleep eludes me. If anyone can help alleviate my “invest-istential” angst, I’m all ears. In the meantime, feel free to suggest essential oils, soothing teas and other avenues for getting some shuteye.

My ex and I parted ways about a year ago. After taking some time to eat some ice cream, clean out my closets and get my personal feng shui back in order, I decided recently it was time to re-enter the dating scene.

Unfortunately, as someone who A) works from home and B) travels extensively, I realized that meeting men who weren’t delivering FedEx packages or patting me down in the airport was going to be a bit challenging. So I bit the bullet and did the online dating thing.

Color me PTSD’ed.

My first day at the online ‘all-you-can-date’ buffet saw me literally innundated with emails. “Hey!” I thought. “I must still have it!.”

But then I started to actually open those emails and realized that nearly all of the men who had emailed me could be categorized into one of three buckets:

Men holding things they had killed;

Men my dad’s age and older; and

Curiously, Civil War re-enactors (As an aside, do folks not realize the South actually lost the Civil War? I mean, isn’t that kind of like re-enacting the Titanic sinking over and over again? Big fanfare. Long denouement. Everyone dies. But I digress…)

Ho-lee-shit.

My mind started racing.

“Well, if this is the best that’s out there for me these days, I’m going to be single forever,” I thought.

“Do you suppose they have nunneries for spiritual, not religious, former Presbyterians-quarter Jews whose favorite form of cardio is shopping and who want to endow the cloister not only with their worldly ‘dowry’ but with vast amounts of high quality hair gel???” I wondered.

Seriously. My dating life was over. Kaput. I was hopeless. Driven to salted caramel ice cream, red velvet cake, NeimanMarcus.com and re-runs of the BBC's Pride and Predjudice in an instant.

And then I realized something.

I had fallen for literally one of the oldest tricks in the mind’s playbook. Instead of considering the known unknowns (i.e. – the thousands of men online and in the physical world from whom I hadn’t received disturbing, Santa Clause-esque pictures), I had taken the known knowns and concluded that I would eventually die alone and be eaten by my cats. And don’t even get me started on the unknown unkowns in this scenario. I mean, Bridget Jones-type endings don’t just happen in the movies, right?

Daniel Kahenman explained this information processing phenomenon in his book Thinking Fast And Slow as “what you see is all there is (WYSIATI),” and I was a classic victim.

But it was somewhat comforting to me to remember that I’m not the only one that falls for this little mind game. The investment industry does it all the darn time. In fact, it’s one of the things that makes me the kinda tired about the work I do.

Don’t believe me? Think about the following areas:

Hedge Fund Returns: A classic example of WYSIATI, we all know that hedge fund returns have been positively tragic for years, right? I mean, we see the HFRI Asset Weighted Index is down -0.21% through July and that obviously means that all funds have struggled to post any kind of decent returns. Well, hold on there a minute, Sparky. What if I told you that looking at that one number was giving you a bad case of the known knowns? What about all of the other funds in the HFR database? I guess they’re underperforming, too? Nope. Even if you look at other index categories you can see instances of strong outperformance: Credit Arb – up 5.17%, Distressed – up 6.20%, Equity Hedge Energy – up 10.73%, and those are all averages. Or what about the small funds I'm always pushing on y'all? They are up 4.1% for the year to date, according to industry watcher Preqin, compared with a somewhat anemic gain of 0.54% for the "billion dollar club." In fact, these numbers are the known unknowns – the numbers we could consider, but we don’t because there’s a nice, neat single little index number for us to rely on. And then you’ve got the unknown unknowns – the funds that DON’T report to HFR and aren’t accounted for in their index. I know of funds that are up 10%, 15% even 20%+ for the year. In a universe of 10,000 funds, drawing conclusions from one bit of known known data just doesn’t cut it.

Diversity: In April 2015, Marc Andreessen famously said in an interview that “he has tried to hire an unnamed woman general partner to Andreessen Horowitz five times. Each time, she’s turned him down.” See? Even a luminary in the venture capital world can get sucked into WYSIATI. Because the “unnamed woman” was likely one of the few females Andreessen associates with in the industry, she constitutes his entire universe. She is his known known. And if you think there aren’t great women and minority candidates, funds or investment opportunities out there, the problem is likely with you. Cultivating different networks, rewriting job descriptions to attract different applicants, working with recruiters who specialize in diversity, hell, even just being more intentional about hiring and investing can reveal a wealth of candidates that can help bring cognitive and behavioral alpha to your firm.

Fund Fees: Hedge fund fees are 2 and 20. 2 and 20. 2 and 20. I hear (and read) this so much I want to vomit. Do some funds charge 2 and 20? Sure. Do some funds (read: most funds) charge less, if not in headline fees, in actual fees? Hell yes! The average fees for a hedge fund these days is about 1.55% and 18% and declining. For new fund launches, fees were remarkably stable for years, never approaching the 2 and 20 milestone on average. And what’s more, roughly 68% of funds in a Seward & Kissel study offered reduced fees for longer lock ups, while 82% of equity funds and 29% of non-equity funds offered reduced-fee founders share classes. And what about hurdle rates? An investor recently swore to me that “no hedge funds have hurdle rates.” Well, that’s just bupkis. A show of other investor hands in the room immediately dispelled that myth, proving that, while not the majority of funds, some funds do have benchmarks to beat before they take their incentive allocation. What that one investor saw was not all there was.

Indices: Can’t Beat ‘Em, Join ‘Em: Obviously, the entire investment industry is trending towards passive investments. You can’t swing a dead pouty fish without hitting an article touting the death or underperformance of active investment management. And for people who have only been investing over the last 10 years or so, it probably looks like the S&P 500 is a sure bet. Always goes up, right? Well, wrong. While it’s certainly true that the S&P does tend to go up over time, you can never be sure what the time frame will be, and whether you’ll have time to recover from any unexpected downturn. But the bull market we’ve seen since March 9, 2009 isn’t all there is. Actually, if you recall, at that point in time, the S&P 500 had just experienced a 10-year losing streak. Ouch. Don't believe me? Ask any Gen X'er like me how much Reality Bites when the first 10 years of your 401k saving is wiped out by a tech wreck. Sorry, Millennials, but you haven't cornered the market on false financial starts quite yet.

Investment Opportunities/Herding: Private equity and venture capital dry powder with nowhere to go. Hedge funds all own the same stocks. Crowded trades. High valuations. What investor could possibly make money in this environment? Once again, 13-Fs, Uber and Apple aren’t all there is. Even though we tend to fixate on the visible data, there are a number of niche-y, networked, regional, club-deal and other funds out there getting it done. Even big firms with the right resouces can pound the pavement, do the research or build the quantitative system that generates returns. Don’t believe me? Read the article (link below) on Apollo, who did more deals in the first part of this year than their three largest competitiors put to work in the same period. Just because the managers you’ve seen thus far haven’t done it, doesn’t mean it isn’t being done.

So before you freak out about one of the topics above and eat an entire red velvet cake while standing at your kitchen counter (no judgement).

Before you decide that you should do away wholesale with your hedge funds, private equity funds, venture capital allocation, financial planner, mutual funds or your dating life.

Take a step back.

Breathe.

Sign off of Match.com because, honestly, any site that thinks the best reason for going on a date with someone is that neither of you smokes needs help with their dating algorithm.

And understand that you’re likely looking only at what you know, which may not help you as much as you’d like.

How many times have you sat through a panel presentation at an investment conference only to be bored out of your damn mind by one session or another?

The topic of the session doesn’t matter. It can be a session on anything from the tax treatment of investments to investors writing actual checks to fund managers on stage - investment porn if you will.

Indeed, there is only one thing that can kill a panel discussion faster than Raid kills roaches: overwhelming consensus.

“I agree with the prior panelists that (restate what you’ve just heard).”

“I agree with the prior three panelists that (restate again what you’ve just heard two times already).”

“Bob, do you have anything to add here?” “Well, I actually agree with Pat and Mary and that gentleman in the audience…”

C’mon, you know you’ve been there. And whether you’re in the audience or actually on the conference stage, a part of you wants to pick up a chair, throw it, and start chanting “Jer-ry! Jer-ry! Jer-ry!”

Ok, maybe that’s just me.

Now don’t get me wrong, generally I’m a fan of consensus. Consensus over where to eat dinner, what bottle of wine to order, whether or not a particular outfit makes my butt look big - these are good things on which to have input and universal agreement.

But when it comes to investing, I look for a few renegades, rogues and innovators and prioritize utility over unanimity, potential benefit over style and strategy boxes, because that's where excess value lives.

Last week, Palgrave, the publisher of my 2015 tome Women of the Street: Why Female Money Managers Generate Higher Returns (And How You Can Too), and I launched a Twitter poll. Roughly 130 Tweeters (Twitterers?) responded to the question: “Why do you think gender diversity is important in investing is important?”

This multiple-choice poll offered the following options for answers: Underrepresentation, Higher Returns, Diverse Behavior/Views, and Not Important.

The winning answer (39%) in the poll was “Diverse Behavior/Views”, which was great because that’s essentially my book in a nutshell, and I love the smell of validation in the morning.

I was, however, somewhat stunned that the second most popular answer (30%) was “Not Important.”

Uh, what? How can diverse views and behavior NOT be important in this industry? After all, the investment industry is overwhelmingly Caucasian, male and 35+, and the fund landscape (no matter what the asset class) is dominated by a few large investment firms …and if that ain’t a prime breeding ground for painful consensus, I don’t know what is.

Look, it’s undeniable that some level of consensus is necessary in investing (otherwise you will own a stock, company, bond or other instrument that never increases in value 'cos no one agrees with you about the value), but when we drift towards overwhelming consensus, I believe our ability to make money is diminished. And nothing pisses me off like missing out on returns.

Let’s take venture capital, for example.

Data from the Martin Prosperity Institute shows that 25.3% of venture capital is invested in San Francisco/San Jose.

Data from Forbes/Statista shows that 36.2% of venture capital is directed towards software companies, with another 17.3% going into biotechnology.

And data from PitchBook shows that 45% of venture capitalists with MBAs matriculated from Harvard, Wharton or Stanford.

That's a whole heapin' helpin' of consensus.

To oversimplify a bit, that means you end up with a Venn Diagram of geography, network and industry that looks a lot like the one below, where anything that is overlapping spells some level of competition (higher valuations, similar concepts, etc.).

(c) 2016 MJ Alts

But start to change even one thing around and you could end up with increased opportunity. What if you look at the same industries and you went to Harvard, but you focus on, I don’t know, the Southeast, for example? Would it make sense that you might find some highly interesting investments that others might not, or are all the good ideas on the coasts? Or maybe you change your network. With so little capital directed to women and minority entrepreneurs, what if you cultivated a different network (or hired people with differentiated networks) to find out-of-the-box opportunities? Could that open up a new avenue for excess returns? The capitalist in me says, “Yes!” Differences can be good.

(c) 2016 MJ Alts

The same types of things happen in other parts of the investment spectrum, too. I’ve discussed in prior blogs research showing that long-only “benchmark huggers” have less chance of outperformance, (http://www.aboutmjones.com/mjblog/2016/5/3/kicking-the-buckets) and if you think about it, the same should generally be true for hedge funds.

For example, equity hedge funds make up roughly 30% of the overall hedge fund universe by number, and roughly 40% by assets under management. Many of these funds focus on US investment markets, and the vast majority are also managed by white males. This creates a universe of funds that potentially has a similar universe of investment opportunities, similar information available and similar behavior patterns, which can limit outperformance. By modifying one aspect, behavior for example, could we open ourselves up to a differentiated or even higher return? What if we looked at *truly* different strategies? What if…?

(C) 2016 MJ Alts

(c) 2016 MJ Alts

Now, don’t get me wrong. I am not anti-anything that generates (or exceeds) my expected return, and the reason that assets tend to concentrate the way they do is that those firms, industries, strategies, etc. often have a history of success.

But as an industry watcher, I can’t help but wonder what kinds of returns would be possible if investors and asset management firms changed their perspective just a bit and took a road less traveled every once in a while. If we wondered less about how much an investment or new hire or strategy looks like past success and instead asked how it is differentiated and could contribute to our overall success. I’m guessing we’d end up with increased diversification, higher returns and a myriad of other tangential benefits, not the least of which is fewer torturous panels.

As y’all recover from the excesses of fried turkeys, stuffed stockings, too much ‘nog and an overdose of family time, it seems like a good time to catch up on some light reading. So, in case you missed them, here are my 2015 blogs arranged by topic so you can sneak in some snark before you ring in the New Year.

Happy reading and best wishes for a joyous, profitable, and humorous 2016.